October 26, 2026 / Newsletters, Publications
Reminder: Charitable Planning Changes Under the One Big Beautiful Bill Act
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, brought significant changes to the federal charitable deduction rules — many of which took effect beginning January 1, 2026. The summary below should be used as a reminder to revisit certain charitable planning strategies that may have been established under prior law.
1. New 0.5% AGI Floor on Itemized Charitable Deductions
For tax years beginning after December 31, 2025, individual taxpayers who itemize deductions may only deduct charitable contributions to the extent they exceed 0.5% of adjusted gross income. This functions similarly to the floor on medical expense deductions and effectively renders smaller charitable gifts non-deductible for high-income filers. As an example, for a client with $2 million in adjusted gross income (AGI), the first $10,000 in charitable gifts generates no income tax deduction whatsoever.
2. Cap on Itemized Deduction Benefit for Top-Bracket Taxpayers
For taxpayers in the 37% bracket, the OBBBA limits the effective tax benefit of all itemized deductions — including charitable contributions — to 35 cents per dollar rather than the 37 cents that would otherwise apply. While the reduction is incremental, it represents a direct reduction in the after-tax cost advantage of charitable giving for the highest-income donors.
3. 60% AGI Limit for Cash Gifts to Public Charities Made Permanent
On a more favorable note, the OBBBA permanently extended the 60% of AGI limit for cash contributions to public charities – including donor-advised funds (DAFs) – which had been scheduled to revert to 50% at the end of 2025. This preserves a meaningful planning opportunity for clients making large cash gifts in years of unusually high income — for example, in connection with a liquidity event, business sale, or large IRA distributions.
4. Planning Implications and Strategies to Consider
Taken together, the OBBBA’s charitable provisions make the tax economics of charitable giving more complex and, in many cases, less efficient than under prior law; however, several strategies merit attention. DAFs remain one of the most effective vehicles for clients who wish to take a large deduction in a high-income year while distributing grants to specific charities over time since contributions to a DAF are deductible in the year of funding, subject to AGI limits. Qualified charitable distributions (QCDs) directly from an IRA to a qualifying public charity are particularly valuable under the new rules, as they bypass the 0.5% AGI floor and the itemized deduction cap entirely, while also reducing the donor’s adjusted gross income. The QCD limit is $108,000 per IRA owner in 2026.